The US economy is the lead dog. Our consumer is still the engine that pulls the world economy. A good measurement of the strength of the world economy is the US balance of trade deficit, This deficit peaked out in the middle of last year at about 80 billion per month. It is currently running at about 20 billion a month. That is telling us that our consumer is slowing way down and exports coming into the US are slowing way down.
The story is now that the world economy is going to turn back up without a recession. The weak dollar is "telling" us that their economies are stronger. The true story is that the dollar is going down because the US is being very proactive in dealing with the weak economy and the rest of the world is sitting on its hands waiting for Uncle Sugar to bail them out.
The truth as I see it is that at some point the rest of the world will have a crash just like we did last year. They will then start doing what we have been doing since last October. That is when the dollar takes off. The fact that the trade balance deficit is falling so sharply means that the Dollar is way undervalued now not overvalued as they are telling you in the media.
There is a big lag between the world economy and ours. The rest of the world is geared up to sell to a US economy that is no longer there. The US is pumping money into the financial institutions but has done nothing to help the consumer. The US economy is going to double dip and when it does the rest of the world will not have anyone to sell to.
Real Estate was in the same condition in early 2006. It had peaked in mid 2005 but in 2006 activity was slowing. The word was that everything was going to come back but the FED had done nothing to help the markets. The results were predictable a crash in real estate and a resulting crash in the financial institutions that was dependant on them.
I believe that the financial institutions that financed the world economy over the past 10 years are where our banks were in 2007. They are extended and cannot handle a slowdown now. In other words, it is a house of cards waiting to happen. When it does they will have to do the same thing the US has been doing for the past year.
The bottom line is that being long the foreign markets and commodities and Gold and short the Dollar is like being long Real estate in the US in early 2006. That is not what the system is putting out in the media. The message is to buy Gold, Oil, Foreign bonds, Commodities and sell the dollar. The public is buying into that message in a big way now. To confirm this just as 100 people what they think of the Dollar now. I promise you NOT ONE will tell you it is going up.
That message could not be more wrong!
The beat goes on ....Mikey
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